'Staggering' WA gas find offers hope for low-cost LNG source

A major gas discovery made in Western Australia this week could form the basis of a huge onshore resource that could be much more economical to develop for LNG production than remote fields offshore, according to the managing director of 50 per cent resource owner Warrego Energy.

The West Erregulla-2 well in Western Australia's North Perth Basin has found more gas than anticipated. Supplied

Dennis Donald said that depending on the results from further drilling and testing, the West Erregulla-2 find about 300 kilometres north of Perth could be part of a larger conventional gas resource that could be tapped in the region, including the circa 800 billion cubic feet Waitsia field held by Mitsui and Beach.

Beach is also set to drill a separate exploration well to the south, Beharra Springs Deep, that is targeting a similar geological play and around which optimism is building of a similar successful result.

Mr Donald told The Australian Financial Review that if flow test results at West Erregulla-2 reflect those from Waitsia, "you wouldn't need a lot of wells to gain the volumes of gas you need" for LNG.

He pointed to vastly lower costs to extract conventional gas onshore than for distant offshore resources struggling to be commercialised economically for LNG. Fields in that bracket include Woodside Petroleum's Browse gas resources far off the north-west coast.

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News of the West Erregulla-2 find is being described as "staggering" by Warrego's partner Strike Energy, where managing director Stuart Nicholls noted the results from the Kingia sandstones "exceeded Strike's highest expectations".

Both stocks were 8-10 per cent softer by Wednesday afternoon but Mr Donald suggested he did not regard the spike as overdone.

"I would be so bold to say we are probably still a bit cheap," he said, while acknowledging the market would be cautious ahead of firmer results.

The explorers reported that the West Erregulla-2 well, one of the deepest ever drilled onshore in Australia, found gas over at least 97 metres in the Kingia sandstones, including 41 metres of "net pay", signalling it should technically be able to be produced.

The well is still being drilled deeper to reach the High Cliff sandstones lying at a depth of about 5km, where the partners "have a high degree of confidence" that they will add to the gas resource at the site, Mr Donald said. Gas was also found in a shallower sandstone but it wasn't tested.

The total depth of 5.2 kilometres should be reached early next week, to be followed by production and flow testing. That means a preliminary estimate of the volume of gas at the field is still about two weeks away.

In January, Strike gave a pre-drill best estimate of a potential 1.16 trillion cubic feet of gas at West Erregulla, including 454 billion cubic feet in the Kingia sandstones, with a top estimate of 627bcf.

Subdued market

Mr Donald said initial indications were that the resource in the Kingia was bigger than that, and potentially bigger than Waitsia.

But Mr Donald said he fully expected West Erregulla-2 to be commercial even at current WA prices given low overheads, a low cost to access the resource and the ability to start with a small-scale plant before ramping up.

Strike already in late May sold an option to Wesfarmers' CSBP subsidiary for up to 100 petajoules of gas from West Erregulla-2.

The development of alternative supplies of critical minerals, as well as other joint efforts by Australia and the United States to address Chinese influence in the region, will dominate talks in Washington.